Corn and soybean prices will continue to
react to weather and crop conditions. In addition, two USDA
reports to be released at the end of the month could have
some influence on price.

The market will closely monitor the USDA's weekly reports
of crop progress and crop conditions to assess yield potential
of the 2004 corn and soybean crops. For corn, progress is
well ahead of normal in many areas with tasseling well under
way for the early planted crops. Some concern about yield
potential stems from areas of excessive precipitation and
a period of below normal temperatures. In addition, of course,
the most critical part of the growing season is now unfolding.
For soybeans, the most uncertainty about yield potential currently
stems from the impact of too much precipitation in some areas.

For both corn and soybeans, the market will have significant
interest in the USDA's June 30 Acreage report. In March the
USDA reported producer intentions to plant 79.004 million
acres of corn and 75.411 million acres of soybeans. There
has been a general expectation that corn area exceeded March
intentions and that soybean acreage fell short of intentions.
It is argued that early planting and a spike in corn prices
above $3.00 drove the shift towards more corn. One prominent
private firm has reportedly estimated that corn acreage exceeds
March intentions by 2 million acres and soybean plantings
are one million acres below March intentions. Such large shifts,
particularly in corn acreage, have been rare.

In addition to uncertainty about planted acreage, the market
will debate the magnitude of acreage lost to flooding and
ponding. Until the August Crop Production report, the USDA
will rely on producer reports of acreage to be harvested.
Flooded areas will reduce harvested acreage, while ponded
areas could influence either yield or harvested acreage estimates,
or a combination of the two.

The USDA will also release the June Grain Stocks report on
June 30. This report will contain an estimate of stocks of
corn and soybeans as of June 1. Estimates for both corn and
soybeans will be important due to the relative tightness of
stocks. However, there is particular interest in the estimate
of soybean stocks for at least two reasons. First is the extreme
tightness of stocks and indications that the pace of the domestic
crush has not yet slowed enough to stretch old crop supplies
until harvest. Second, the March 1 estimate of soybean stocks
was larger than expected, implying an unusually low level
of "residual" use of soybeans during the first half
of the 2003-04 marketing year. That surprise raised questions
about the actual size of the 2003 crop. In addition, the Census
Bureau estimates of soybean exports in March and April were
well above the USDA estimates, adding more uncertainty about
the actual rate of consumption. The June 1 stocks estimate
will give a clearer picture of the rate of use and provide
additional evidence about the actual size of the 2003 crop.
More importantly, the estimate will reveal the extent of the
needed reduction in domestic processing use of soybeans for
the rest of the summer.

Perceptions that current conditions point to a large 2004
U.S. corn crop, along with the recent slow down in the pace
of export shipments, have resulted in a significant decline
in December 2004 futures prices. That contract traded to the
$3.40 level in early April, about $1.00 above the low in December
2003, but traded to $2.76 on June 21. For the next few weeks,
the crop condition reports should continue to reflect a high
percentage of the crop in the good or excellent categories.
It also appears that much of the crop will reach the pollination
stage under generally favorable conditions. Such a scenario
leaves only the June 30 Acreage report as a possible source
of a near term recovery in prices. A failure of that report
to show the expected increase in acreage would be a reminder
of the on-going tightness in U.S. and world grain inventories
and provide the basis for reversing the current trend of lower
prices.

November 2004 soybean futures peaked near $8.00 in late March
and again in early April, about $2.60 above the lows in September
2003, but traded near $6.50 last week. With so much of the
growing season remaining, uncertainty about crop size will
continue to provide some opportunity for price recovery. Targets
for that recovery, however, are generally well below the levels
of early May.